Guide to Spanish Property Taxes For Non-Residents

It is fair to say that many people intending to buy property in Spain, and even those who have already bought, do not realise they are legally obliged to submit an annual income tax declaration in Spain.

Even if you are not a resident, you cannot get out of it, a tax return is obligatory.

The article below gives a general Spanish property tax guide and looks at the tax implications of owning a property in Spain.

We hope it clarifies matters but of course, if in doubt do seek professional advice and help.

If you live in Spain you may also wish to reference our main independent financial advisers in Spain page or we have loads of useful information if you are moving to Spain or retiring to Spain.

Non-Resident Home Owners in Spain and Annual Property Taxes By Diana McGlone

Many non-resident owners of property in Spain are under the misconception that they can forget about submitting their annual tax forms!

It would be nice but it is not the case. However the good news is, from 2009 the taxes payable will be less than people paid in previous years.

Up until the end of 2007 non-residents with property in Spain were also liable to pay a “wealth tax” (Patrimonio) which was calculated on the value of their assets in Spain (i.e. property, savings, etc.)

It is interesting to note that when Prime Minister Zapatero fulfilled his election promise regarding Patrimonio or “Wealth Tax”, with the introduction of Spanish Law 4/2008 passed on the 23 December 2008, the tax was finally amended by reducing the taxable base to zero.

Is this technically a formal abolition of the Tax? The answer is no. Certainly the effect is that no wealth tax will be paid by either residents, (obligacion personal) or non-residents, (obligacion real).

The law, which ironically was published in the Spanish Government Official Gazette (BOE) on Christmas Day 2008, applies to tax years starting 1st January 2008 onwards which, under the previous scheme would have been payable in arrears in 2009.

The mechanics of the new law mean that the obligation to submit a wealth tax return (Modelo 214) is terminated by applying a 100 per cent deduction to the taxable base.

By reducing the tax to zero but not abolishing it, is the Spanish Government retaining the option to re-introduce the tax in the future? That may well be the case!

So to reiterate, the Patrimony “wealth tax” has to all intents and purposes been done away with. But that does not mean that there are no annual property taxes for Non-Residents to pay. You may remember noticing on previous year’s Modelo 214 forms that there were 2 separate calculations: The Patrimony amount and the “Declaracion de la Renta” amount.

The “Declaracion de la Renta” or “Non Resident’s annual tax return” must still be made and paid!

Taxation, and particularly dual taxation issues are an extremely complicated subject and I would always advise readers who make financial gain from their property in Spain to get a qualified assessment of their own personal circumstances, either directly from the Spanish “Hacienda”, Spain’s Inland Revenue, or from a tax professional.

However, in general terms the earnings from rented property or sub-let property are calculated on 24 per cent of the gross income received from the tenant, excluding IGIC.

If the property is only rented out for part of the year, the earnings are calculated as above for the rented period. For the part of the year that it lies empty, the calculation is made as for “Deemed Rental Income”: see below.

See if your Catastral Value has been updated since 1994 if the answer is yes the coefficient to use is 1.1 if the answer is no then use 2. Multiply the Catastral Value by 1.1 or 2 (as above) per cent

Take this value and multiply by 24 per cent – thats how much deemed rental income tax you pay.

Example: Catastral Value 150,000 revised since 1994 = yes x 1.1 % = 1650

x 24% = 396 euros tax payable

If your property is left empty, even though you do not let out your holiday home for gain, Spanish law assumes you have what is called a “Deemed Rental Income” which is subject to non-resident Income Tax.

The “Deemed Rental Income”, which used to be included on the old Modelo 214 form, is now declared on a Modelo 210 form.

The amount you pay is calculated using the “Valor Catastral” (Rateable Value) of your property in Spain. This can be easily ascertained by looking at the receipt for your “Impuestos Sobre Bienes Inmuebles” or IBI, (often referred to by English speakers as “Rates”) – which is paid to your “Ayuntamiento” annually. The format can vary between Ayuntamientos, or whether you get the receipt from your bank rather than paying in cash. But all the information you need will be on there.

This receipt will also tell you whether the rateable value of your property has been revised since 1st January 1994. This is critical because the percentage used to calculate “Deemed Rental Income” is higher if your rateable value has not been revised since that date. Tax payable on the “Deemed Rental Income” is 24 per cent. The deadline for the submission of form Modelo 210 is the June 30th 2009 for income deemed or actually derived in 2008.

All of the above applies to Non-residents with no permanent establishment but who own a holiday home in Spain

Anyone treating apartment letting as a business

If someone owns property in Spain, but is not resident in Spain for tax purposes and has at least one office or premises used for managing the letting business and employs one or more people on a full time contract, then the owner is considered to have income through a permanent establishment in Spain and is subject to different regulations.

I wrote this article with the aim of making non-resident homeowners aware of their legal obligation to submit an annual income tax declaration in Spain; it is not intended to be a crash course on Spanish tax law. As I said that’s a complicated subject and peoples’s circumstances differ. But what holds true for all, is that no non-resident home owner, whatever their circumstances, is exempt from making a non-residents Income Tax return.

Do you know someone who has owned property in Spain for years and never made a declaration? Probably. However, if they are caught, and computerised records are making that ever more likely, they are liable to pay the last four year’s tax and probably a hefty fine.

But in any case, when that property is eventually sold or passed on as part of an inheritance, the Spanish Tax Agency can and will check their records, which will show the property is owned by a non-resident and that no tax declarations have been received. The taxes will then need to be paid, including any fines imposed, before the property can be legally transferred.

I believe that at the very least it makes sense to clarify what your tax liability is and if at all possible keep things up to date, rather than looking over your shoulder and waiting for a fine to drop on the mat!

Remember, if you do not speak Spanish, or you simply can’t face grappling with the Spanish Tax Authorities in Tenerife on your own, let The One Stop Problem Shop take the strain and assist you with it, along with the many other forms of bureaucracy you encounter in your daily life as an Ex-Pat.

Taxes in Spain: what you need to pay as an expat or as a property owner – get the FREE GUIDE from Abaco Advisors.

Many people who own a property in Spain are completely unaware that they must be filing a tax return and paying tax on their property even if they DO NOT let it out. The article below clarifies this legal obligation:

Spain Income Tax for Foreign Property Owners

Foreign nationals who are not registered for tax in Spain but own property in the country must submit a tax declaration for their income tax to the state tax office every year.

This involves the so-called Impuesto de la Renta de No Residentes (Income Tax for Non-residents).

Many property owners do not understand why they must declare and pay tax in Spain even though they earn no income here because they only come here for holidays and therefore neither work nor are involved in any economic activities or receive interest from banks on financial investments.

There is usually no rental income from property either. Despite this, in Spain (much like in other European countries), simply owning a property is regarded as income, even when the property is not let or leased out.

The state tax system assumes that a profit is made from the property even if it is not rented out, it is not the own home or if the property is not dedicated to economic activity, which for non-residents can never be the case.

How is this fictitious return calculated?

Spanish law stipulates that income earned from the simple possession of a property equates to a certain percentage of its cadastral value. This percentage is either 2% or 1.1%, depending on the year in which the Spanish Land Registry (or rather, the respective municipality), updated its property values.

The Land Registry is a national register of properties, answerable to the Spanish tax office, which gives the authorities information about these properties (owners, size, use, year of construction, boundaries, etc.). The information stored at the Land Registry can be submitted by Land Registry officials themselves, the municipalities or the owners of the property.

One of the most important pieces of information on every property is in fact the cadastral value. This value is dependent on many other objective details and here on the coast can generally be a lot lower than the market price that we would set for the property.

Despite this, this objective value is decisive for almost all authorities and provides the basis for many taxes, including income tax for non-residents. This percentage of the cadastral value is therefore the basis for income tax for non-residents, which is currently 24%.

Every year, the owners must pay the resulting sum by 31 December the following year. This means that foreigners who own a property in 2010 must submit their tax declaration to the tax office and pay the tax by 31 December, 2011.

In 2008, the tax office changed the forms for this declaration, which caused problems for many foreigners who did not hear about this amendment in time. Until then, Form 214 was used, but now Form 210 must be completed.

The change was a consequence of recent tax reforms, which saw the abolition of property tax. However, the tax for non-residents was retained because it is regarded as a form of income tax rather than a property tax.

Otherwise, for non-residents there are only the local rates, the so-called IBI, which are paid as a municipal tax that every municipality demands from property owners each year and which is calculated and demanded by the local authority itself.

Carlos Prieto Cid Tarracoiuris Abogados Member of Eurojuris España

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